Introduction To Partnership Meaning And Features Of Partnership Act 1932
Introduction To Partnership Meaning And Features Of Partnership : There are several limitations to a proprietary means sole trading form of business like limited capital, No division of liability, limited skill of operating the business etc. Due to such limitations of proprietary business ‘ Partnership ‘ came into existence.
Partnership is an important form of business organisation. In simple words, the partnership means “ An association of 2 or more persons, who enters into an agreement, contribute certain amount of capital, undertake and manage certain lawful business with intention of earning and sharing profits “
As per Indian Partnership Act, 1932 , Section 4 the partnership is defined as –
“ Partnership is a relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all. “
The members of the partnership business are individually called as ‘Partners’.
All the members of the partnership business are collectively termed as ‘Partnership firm’.
The name under which, partnership firm carries on its business, is said to be ‘Firn name ‘.
CHARATERISTICS / FEATURES OF PARTNERSHIP
- Agreement : Partnership business comes into existence with an agreement between persons. Partnership firm is governed and managed on the basis of agreement. Such an agreement may be in written form or oral. But agreement must be there to form a partnership firm. If there is a written agreement, It is termed ‘Partnership Deed’.
- Number of partners : We know partnership is an association of persons. Following are the provisions of the Indian Partnership Act with respect to minimum and maximum number of partners in firm –
Minimum Limit :
There must be minimum 2 persons to form a partnership firm.
Maximum Limit :
a. In case of an ordinary business means non banking business maximum 20 persons can be taken as partners.
b. In case of banking business maximum 10 persons only can be taken as partners.
- Trading between : Partnership is formed with a motive of profit. It means partnership is a trading business. It is not a non trading means not for profit organisation like public library.
- Sharing profits : As we know partnership is formed with an agreement. As per such an agreement, the partners share profits and losses of the business. The profits or losses are shared by the partners in an a greed proportion. Such an agreed proportion is termed as ‘ Profit sharing ratio ‘. If there is no such agreed profit sharing ratio, as per the provisions of the Indian Partners Act 1932 the partners share profits and losses equally.
- Right of management : Each partner has a right to take part in the management of the business. But if it is not possible to take an active part in the management of business, due to some practical reasons, in such case the other renaming partners manages the business on behalf of all partners of the firm. Sleeping partner has also right to take an part in the management of business, however he not takes active part in the management of business as per his own willingness.
- Relation : The relation between the partners is that of Principal and Agent. When a partner deals with third party on behalf of partnership firm –
He is a principal in view of that third party with whom he is transacting.
He is an agent in view of partners, on whose behalf he is dealing with third party.
- Liability of partners : As per Indian Partnership Act 1932 Section 25 , the liability of the partners is unlimited.
The liability of each partner is unlimited, it means that – If the assets of the partnership firm are not sufficient to pay all the business liabilities, in such a case the partners have to bring cash from their private property to discharge the liabilities means debt of the partnership firm. The amount is recovered from their private property until the liabilities of the firm are fully discharged. All the partners are collectively as well as individually, responsible for the debts of the firm.
- Lawful business :
The partnership firm has to carry a lawful means legally allowed business trade or occupation or profession. It means it can not undertake any business, which is forbidden by the law.